The Royal Academy in London was last night struggling to save its blockbuster exhibition of Russian and French masterpieces, due to open in only a few weeks, after Russia withdrew its loans of the paintings.

The exhibition was one of the most keenly anticipated of the year, and included a string of masterpieces from the Hermitage museum, in St Petersburg, that had never been exhibited in Britain before and were insured for almost a billion pounds. Among the works to have been shown was The Dance, a sinuously monumental painting by Matisse regarded as a landmark in western art, which has been in Russia for most of the 20th century.

Messages were flying between London and Moscow all day yesterday, at both curatorial and government level, over a development seen as having little to do with art, and everything to do with worsening relations between the two countries since the murder of the former Russian spy Alexander Litvinenko, who died in a London hospital after he was poisoned with polonium-210, a rare radioactive isotope.

The frosty diplomatic climate worsened after Russia refused Britain's request to extradite Andrei Lugovoi, a businessman and former KGB officer, for questioning in connection with the death.

The official reason given in Moscow for the withdrawal of the paintings was a fear that attempts could be made to seize the paintings by descendants of the original owners or those owed money by Russian sources. Unlike many western countries, Britain lacks the legislation to prevent such seizures from national collections.

The 120 masterpieces were to come from the Hermitage and other major museums, including the Pushkin in Moscow, whose director, Irina Antonova, dropped the bombshell yesterday.

"The British side did not guarantee the return of the exhibition. As negotiations on such guarantees have ended unsuccessfully, the decision on returning all the exhibits to Russia has been made."

The Department of Culture Media and Sport denied this yesterday and said that both the secretary and minister, James Purnell and Margaret Hodge, had written to the Russian authorities assuring them the pictures would be returned safely.

A statement from the department said. "The government has done everything possible to facilitate the exhibition going ahead, including full assurances that the works would be protected from seizure. We have also underwritten the collection to the value of nearly £900m.

"Thousands of works of art are loaned to exhibitions in the UK each year from foreign institutions, including Russia. They provide both great enjoyment and promote cultural understanding between the respective countries."

The academy is taking heart from the fact that the pictures are still on display in Germany and are not due to be packed and sent back to Russia for several weeks. "The news may be premature," Charles Saumarez Smith, the Academy's director, said, "I certainly hope so."

There has been genuine concern in Russia about lending abroad, since an attempt was made in Switzerland two years ago to seize 55 paintings from the Pushkin collection after a Geneva company got a court order claiming it was owed millions by the Russian state. The works were impounded for several days, but later released.

The academy exhibition was planned to explore the links between Russian painters such as Kandinsky and Chagall and their European counterparts including Renoir, Cezanne, Van Gogh and Gauguin.

Although now regarded as some of Russia's greatest treasures, many of the paintings were seen as suspect and decadent in the wake of the Russian Revolution, despite being nationalised and declared part of the state collection.

The single most famous work, Matisse's La Danse, was commissioned direct from the artist by the textile millionaire Sergei Shchukin to decorate his Moscow home. When he first saw it he is said to have considered sending it back to be made more decent as he was worried the ecstatic naked figures would shock his young daughters.

His grandson has lodged a series of unsuccessful claims to this and a string of other pictures from the collection, in Paris, Rome and Los Angeles.

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